TURKEY LOOKS FOR ECONOMIC SWEETENERS FOR EU

C O N F I D E N T I A L SECTION 01 OF 02 ANKARA 004274

SIPDIS

TREASURY FOR MILLS, ADKINS
NSC FOR BRYZA
COMMERCE FOR ADVOCACY CENTER

E.O. 12958: DECL: 07/29/2009
TAGS: EAIR BEXP FR TU
SUBJECT: TURKEY LOOKS FOR ECONOMIC SWEETENERS FOR EU
ACCESSION

REF: A. PARIS 5495


B. BERLIN 2510

Classified By: Robert S. Deutsch, Charge d'Affaires, a.i. Reasons 1.4
(b,g)


1. (C) Summary. In an apparent effort to secure France's
support for Turkey's EU bid, Prime Minister Erdogan offered
contracts or potential contracts to French companies during
his July trip to Paris. This includes Turkish Airlines'
purchase of 36 mid-size Airbus jets, suggestions that Turkey
is interested in engaging French companies to build nuclear
power plants, and hints of preferences for French companies
competing for Turkish military orders. Playing politics with
state-involved business deals remains a part of Turkey's (and
probably France's) political culture. But the economic cost
to Turkey of making sub-optimal business deals is compounded
by the likelihood that such deals will be long-forgotten when
European leaders make their crucial decision about Turkey's
EU accession next December. End Summary.

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France Trip Highlights Economic Ties
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2. (SBU) Apart from discussions of French support for
beginning EU accession negotiations with Turkey (reftels),
Turkish officials tell us PM Erdogan's July 19-21 visit to
Paris focused on developing bilateral economic ties. Turkish
MFA officials said that in addition to a letter of intent
between Airbus and state-owned Turkish Airlines (THY) for the
purchase of 36 new aircraft, the two sides concluded a
bilateral investment treaty. The Turkish press reported that
there were also discussions of potential French participation
in developing Turkish nuclear energy projects and the
possibility of preferences for French companies in Turkish
defense procurements.


3. (SBU) In addition to meeting President Chirac, PM
Raffarin, and other political figures, Erdogan addressed the
French employers' association, MEDEF, and had a separate,
private breakfast with a smaller group of French
industrialists (who complained to him about Turkey's opaque
investment climate). Erdogan also gave press interviews
highlighting economic ties to le Figaro and other journals.
With $7 billion in bilateral trade last year, France is
Turkey's fifth largest trade partner. French companies have
been authorized $5.7 billion in investments since 1980,
making France Turkey's largest source of foreign direct
investment. MFA said that 500,000 Turks live in France, and
noted that France is an important source of Turkish tourism
revenue.

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Airbus Deal Signed
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4. (SBU) The most concrete economic outcome of the visit
was the letter of intent to purchase 36 Airbus plans that was
announced in Paris and finalized July 22 by Airbus and THY at
the Farnborough Air Show. The order, which includes 12
A321-200, 19 A320-200, and 5 A330-200 aircraft, is worth
approximately $3 billion at list prices. Also in
Farnborough, THY and Boeing announced a THY order for 15
737-800 aircraft. The financial terms of the Airbus/THY
arrangement are not public, although it local press
speculation is that a substantial discount, quoted at up to
$1 billion, was involved. A source close to the prime
minister told us the agreement contains a cancellation
penalty of $10 million, or approximately $300,000 per
airplane.

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No Nukes, Yet
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5. (SBU) The nuclear discussions were more theoretical.
Although Turkish energy officials have for some time been
considering nuclear power plants as an option for meeting
Turkey's growing electricity needs, Erdogan's comments seemed
far ahead of the GOT bureaucracy and caused considerable
surprise in Ankara. Turkey's difficult financial situation
is widely seen as making very expensive new projects like
nuclear plants unfeasible. Local press reports estimate the
cost of the project suggested by Erdogan at $13 billion, with
Turkey only in a position to provide $4 billion of this. As
in the case of the Airbus deal, the Turkish press linked
Erdogan,s statements to Turkey,s efforts to win French
endorsement for Turkey,s EU bid.


6. (C) Energy Deputy U/S Cimen confirmed to us there had
not been a "firm" decision to develop nuclear power in
Turkey. If such a decision were to be made, he believed
Turkey would not try to finance the construction from its
budget, but would look for private companies to build the
plants on a "build-operate-transfer" (BOT) basis. A second
option, he said, would be to reach a bilateral agreement with
an interested country "like the U.S., Canada or France."
Under such an arrangement, all the contracts would be
negotiated with the partner country. Cimen confirmed that
Erdogan had discussed this idea with Chirac, but emphasized
that no final decision has been reached.

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Comment
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7. (C) The split in the THY order, with a considerably
larger share going to Airbus, follows months of intense
political pressure on Erdogan from European leaders,
reportedly including Chirac, Schroeder and Blair. The
Europeans undoubtedly linked -- at least implicitly and
probably explicitly -- Airbus getting the largest chunk of
THY's order to support for Turkey's EU bid. Boeing reps have
told us the company is convinced that they left a better
business offer on the table, particularly in the A320
category. They are disappointed at what seemed to them to be
a clearly political choice.


8. (C) Erdogan undoubtedly viewed such economic
"deliverables" as sweeteners that would encourage French
support for Turkey's EU bid. Indeed, Chirac is reported to
have said, "Let me call Schroeder," when Erdogan informed him
of the airplane decision. However, as reftel A suggests, the
Turks are deluding themselves if they think such
announcements will be remembered come an EU Summit decision
in December on Turkey's accession process. This was also
confirmed by French Trade Minister Loos' ironic comment --
made, however, after the Farnborough announcement -- that
buying Airbus "was not part of the Copenhagen criteria."
DEUTSCH